I decided to start a thread on how to properly purchase a new car and get the best price possible. I sold cars for a few years and know the business inside and out so I thought I would share some insight.
Buying a new car:
Many people are under the assumption that there is 15-30 thousand dollars of markup in a car. I used to always ask my customers "how much markup do you think this car has" and some would say numbers as high as 200%.
I sold Hondas for the majority and in a brand new Honda Pilot Touring ($50,000 vehicle) there is only $3,000 mark up. In a brand new Honda Civic LX (base model) there is only $1,100 mark up.
Domestics such as Dodge, GM, Ford have much more markup in their vehicles than imports (Honda, Toyota, Hyundai, Kia). A brand new Dodge Ram 3500 has around $12,000 in markup.
Now there is whats called "dealership holdback" and that is when the manufacturer marks up the dealership invoice price a certain percentage (usually 2-4%). The individual dealerships will pay an inflated invoice price when they first purchase the car from the manufacturer, but are re-embursed that money when they sell the car. (usually paid out quarterly). Once a dealership has paid off their start up costs, they could get by just selling cars at invoice pricing.
Even if a dealership is selling the car for less than invoice, they can still make some money. For example, Honda has a dealership holdback of 3%. If the dealership invoice price for a 2012 Honda Pilot was $40,000, the MSRP would be $44,550 (including freight and PDI which is $1,550).
The dealership holdback on that vehicle is $1,200. That dealership could sell that pilot for $39,000 ($1,000 under invoice) and still make $200 when they are paid their quarterly bonus.
Now it is very tough to use dealership holdback in your negotiations because most sales managers will tell you they don't know what your taking about.
When you have chosen the car you want to buy, do your research on what rebates are available on the car (check the dealerships website, google etc). The first trick in car sales is to not tell your customer about rebates. For anyone who doesn't understand what a rebate is - it's when the actual manufacturer discounts the dealership invoice price of the car which in return discounts your cost the same amount. If the Honda Pilot has a $4,000 rebate, the dealership still has $3,000 of markup to play with.
If a customer did not know about a rebate and I did not tell them, I had a large amount of money to play with in negotiations. For example, on that pilot with the $4,000 rebate, I could easily take $2,000 off and still make $5,000.
Once you know what rebates are on the car, go into the dealership and test drive and find the right vehicle. Tell the salesman to fuck off if you don't want to be pressured into anything. The salesman is going to try and put you into the vehicle with the most markup. He/she does not care about your needs, they only care about your wallet.
Do not tell the salesman you know about the rebate, see if the salesman will tell you when talking price. If the salesman gives you a price without the rebate, ask the salesman if he thinks your stupid and tell him you know about the rebate. The salesman will feel embarrassed and will now know you have control of the situation.
Tell the salesman that you will pay 3% on top of the dealership invoice price and if it's any more you will go elsewhere. 3% profit is usually the redline that a dealership will sell a car for. Make sure you see the actual papers that show you the dealership invoice price (reputable dealerships will not lie about their invoice price).
The salesman (a good one) will tell you that he will only take it to his manager if you make that an offer. That means you will have to sign a piece of paper and usually give your credit cars as a commitment. Tell him you will offer it once you know what 3% is and always pretend that you are ready to leave at anytime.
As a salesman, that is the worst thing a customer could say is "Well I will have to look around or I'm gonna think about it". A car salesman does not want you to leave that dealership because there is a good chance you will not be back. If a salesman is not meeting your demands, just pretend to walk away.
Once you salesman comes back with the price (3% profit), write it down and leave. Tell them you need to sleep on it.
Go to a different car dealership (that sells the same car) and just walk in and say that you have a deposit at another dealership and will purchase here if you can beat their price. You are a salesman's dream because the salesman has to do no work. Any dealership (as long as they have a few of the cars in stock) will most likely give you a better price. If they don't, find another dealership. Once the dealership beats your original price, get on the phone and call the original dealership. Tell them your at xyz dealership and they have given you a better price. Tell them they have one shot to earn your business or else you are leaving your deposit where you are. 9/10 the original dealership will come down on their price even more. If they don't, call another dealership or if you're satisfied with the second one, buy there.
All of a sudden you are very close to invoice price and have gotten an amazing deal on your new car. It's not over though.
If your financing, the dealership will most likely use whats called a "bump". You have already agreed on price and you think your it's all done. When the dealership works out your payment, they will usually bump it up $10-30/month. If you bought the car for $20,000 and financed over 60 months (assuming 0 interest) your payments should be $333.33/month. The dealership will usually give you a bi-weekly payment which would be $153 bi weekly. By doing this, you think that you are only paying 306/month. Keep it mind that you will have to make 26 payments (52 weeks in a year). Bi weekly is not a bad thing, less money comes out of your account in a month's time, you just have to make more payments. Just don't take your bi weekly payment and multiply by two and think thats your monthly payment because its not. If your payment is $153 bi weekly, the dealership will usually tell you its $163 bi weekly.
Since you have already agreed to price, you just assume that they are going to give you the correct payments. Your guard is usually down since you just shake hands and you expect everything to be smooth sailing from there. The dealership will use a payment bump so they can make more money off you in the finance office. If there is a bump of $10 bi weekly (60 month term) on your $20k car, the finance office has $1,300 to work with. The finance office could offer you $1,500 in warranties, protection packages etc. and tell you "wow your payment only went up $1.50" which doesn't seem to bad. If you decline everything in the office, the finance manager will have to give you your actual payment before you leave since it would be fraud to not. (your payment will go down $10 bi weekly). No one ever complains when their payment goes down.
How to negotiate in the business office
The business office managers are going to pretend they are on your side and are just trying to advise you on how to protect your new purchase. They will try and sell you every warranty available, protection packages, disability insurance blah blah blah. Everything they try and sell you is very negotiable. A lot of the stuff they try and sell you can actually be useful. Eg. rockguard, undercoating (although the car already comes with a light undercoating from the manufacturer). You can usually get half off of everything they sell you. They know they only have one shot to make money off you and making $1 is better than making no dollars. Just tell them you will pay 50% of what you want or else you will not take it.
Also, keep in mind that all accessories the dealership has to offer(remote starter, mats, bug deflectors) has roughly 30% markup which is also negotiable (when purchasing the car). Don't be afraid to ask for $100 off the price of your remote starter.
Good luck buying your next new car.
